NZ dollar gains may be short-lived as investor nerves tested

Oct. 19 (BusinessDesk) - The 0.8 percent
weekly gain the New Zealand dollar is heading for may be
short-lived as geopolitical tensions and rising US interest
rates heighten market volatility.

The kiwi traded at
65.61 US cents as at 5pm from 65.51 cents yesterday, up from
65.06 cents on Friday in New York. The trade-weighted index
was at 71.87 from 71.67 yesterday and is heading for a 1
percent weekly gain.

The local currency got a boost from
higher than expected inflation data this week, which
prompted some traders to reassess the Reserve Bank's ability
to cut interest rates. However, that gain hasn't shifted the
longer-term trend of rising US rates, which makes the
greenback more attractive. The yield on US 10-year
Treasuries is 50 basis points above its New Zealand
equivalent.

On top of that, investors have become
increasingly nervous about how the US will respond to
accusations Saudi Arabia - its Middle Eastern ally -
murdered a journalist. Investors are also unsure as to
whether the UK and the European Union will reach a deal on
Brexit, and how the EU will cope with Italy's plans to run
wider budget deficits. The VIX, known as Wall Street's fear
gauge, was at 20.06, compared with its five-year moving
average of 13.23.

Martin Rudings, a senior dealer foreign
exchange at OMF, said investors are using that heightened
uncertainty and rising US interest rates as a reason to get
out of riskier assets. That is underpinning demand for the
greenback.

"The kiwi has been trending lower and it's not
out of that," he said. "It's stuck in the same situation as
other commodity currencies."

The local currency rose to
4.5492 Chinese yuan from 4.5428 yuan yesterday after Chinese
economic growth fell short of expectations at an annual pace
of 6.5 percent in the third quarter. The kiwi increased to
92.27 Australian cents from 91.85 cents yesterday and
advanced to 50.37 British pence from 50.02 pence. The local
currency was almost unchanged at 73.73 yen from 73.71 yen
yesterday and increased to 57.26 euro cents from 56.97
cents.

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